2011 (3) TMI 1820 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of addition pertaining to Transport handling and Palledari expenses.
2. Deletion of addition pertaining to Repair to building, repair to others, and miscellaneous expenses.
3. Deletion of addition under the head 'Sundry Creditors'.

Summary:

Issue 1: Deletion of addition pertaining to Transport handling and Palledari expenses

The Revenue's appeal challenged the deletion of an addition of Rs. 63,00,570.18 related to Transport handling and Palledari expenses. The AO disallowed 1% of the claimed expenses due to non-verifiability, as only a few bills/vouchers were produced. The ld.CIT(A) deleted the addition, noting that the disallowance was made on an ad hoc basis without cogent reasons. The Tribunal upheld the ld.CIT(A)'s order, observing that the AO did not specify the extent of unverifiable expenses and failed to point out any defects in the books of account, which were regularly maintained and audited.

Issue 2: Deletion of addition pertaining to Repair to building, repair to others, and miscellaneous expenses

The second part of the appeal involved the deletion of an addition of Rs. 14,52,276.32, being 5% of the expenses claimed under the heads Repair to building, Repair to others, and Miscellaneous expenses. The AO disallowed 5% of the claim due to non-production of full vouchers. The ld.CIT(A) deleted the disallowance, stating that the AO did not specify the extent of unverifiable expenses and made an arbitrary disallowance. The Tribunal agreed with the ld.CIT(A), noting that the AO did not provide any reason for the 5% estimate and failed to point out any discrepancies in the audited books of account.

Issue 3: Deletion of addition under the head 'Sundry Creditors'

The Revenue's appeal also contested the deletion of an addition of Rs. 1,31,47,315/- under the head 'Sundry Creditors'. The AO disallowed 1% of the total sundry creditors due to non-verifiability. The ld.CIT(A) deleted the addition, highlighting that the AO did not clearly indicate how the figure was arrived at and that the addition was not in accordance with Section 68 of the Income-tax Act, 1961. The Tribunal upheld the ld.CIT(A)'s order, agreeing that the AO's addition was ambiguous and not sustainable under Section 68, which requires specifying each unproved credit.

Additional Observations:

The Tribunal noted that the AO had rectified the assessment order u/s 154, reducing the assessable income to nil after allowing deduction u/s 80P(2). Consequently, the tax effect was less than Rs. 2 lakhs, making the Revenue's appeal liable to be dismissed as per C.B.D.T. Circular No.5 of 2008.

Conclusion:

The Tribunal dismissed both the Revenue's appeal and the assessee's Cross Objection, which merely supported the ld.CIT(A)'s order without claiming any effective relief. The order was pronounced in the open Court on 22.3.11.